Invoice discounting enables you to take out a loan using unpaid invoices as collateral.
The loan amount typically ranges between 80% to 95% of the value of the invoices, which you will pay back (with interest) once you receive payment from your customers.
Invoice discounting example
- You have outstanding invoices valued at $10,000.
- An invoice discounting company agrees to lend you 80% of the total invoice value.
- The lender will also charge a fee (to cover its risks, interests and other costs). It will be repaid along with the capital.
In this example, you will be given $10,000 x 80% = $8,000 of cash. After you have collected on the invoices, you will pay back $8,000 plus the agreed fee to the lender.
